Bank of America (BofA) Merrill Lynch Global Research places BUY recommendation on GTBank stock, having the best operating efficiency. Nigerian banks underperformed the rest of EMEA YTD and with asset quality problems persisting; we expect this to continue into 2010.

However, one bank stands out as the out-performer, GTBank. We see GTBank as the best in class bank within Nigeria that provides exposure to upside surprises to the oil and macro economic story. It has the best operating efficiency, the lowest 2010E NPL ratio, and a strong capital base adequate to absorb the anticipated provisions. Despite the out performance YTD, it is still trading at only 6.3x 2011E PE, showing significant discount to peers at 9.4x - 30x PEs. We are now raising it to a Buy with a PO of NGN18, offering 17percent upside potential. In our opinion, GTBank is the best play for the long-term potential of this under penetrated banking sector in Nigeria.

Upgrading GTBank to a BUY BofA Merrill Lynch Global Research has a constructive view on the global and regional recovery for 2010 as highlighted by our economic team’s Emerging EMEA year ahead. “With this in mind, it would not seem unreasonable to us to go into 2010 with a Buy recommendation on a Nigerian bank, despite broader/underlying sector problems.

“We upgrade GTBank to a BUY and see it as a longer term beneficiary of improving fundamentals in a consolidated sector. Our PO at NGN18 offers 17percent upside potential.

The bank has outperformed its peers in 2009 and we would expect this to continue. In our opinion, management’s focus on cost efficiency, asset quality and profitability should over time translate into shareholder value. “We have incorporated harsh NPL and provisioning assumptions into our base-case forecasts but still see the bank delivering 11 percent ROEs in 2010E and + 20 percent in 2011E.”

“Below, we summarise our key points on the stock: On a 2010E and 2011E P/E ratio, the bank is the cheapest bank in the Nigerian coverage universe. It also screens favourably on a 2010E ROE/PBV basis.

• Fundamentally, we view GTBank as the strongest bank, with strong pre-provision profitability – thanks to best in-class operating efficiency – which gives the bank ability to absorb sizeable provisioning charges and we view our 2010E/2011E forecasts as conservative.

• We also see capital adequacy as strong (CAR+20%) and positively, as the bank is on target to meet its 2009E guidance of NGN20 billion in after tax earnings.

• Plotted against other emerging market banks, Nigerian banks do not appear overly cheap but we emphasise that the longer term potential in the sector is unquestionable. If profitability surprises on the upside as a result of a stronger than expected economic outcome/better than expected asset quality then we see risks to the upside.

• We view GTBank as the best placed bank to benefit from positive surprises in the underlying sector and broader macro economic/oil story.

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good. . .